Here’s an excellent article by Cato’s Chris Edwards on the stupendous increase in standard of living enjoyed by the Irish over the last 20 years.
What accounts for it? Reducing the tax rate and cutting government expenditures as a percentage of GDP. Low taxes are necessary but not sufficient, since, as Milton Friedman often said, the true measure of what a government taxes is what it spends. That is how to measure its drag on the productive sector; a government that spends a lot is diverting a lot of resources away from market-driven uses and putting them to politically determined uses. Due to the incentives involved, the former are likely to be productive and the latter unproductive.
Edwards also expresses skepticism that the Irish boom has anything to do with spending on education and I’m certain he’s right. People are good at figuring out what human capital they need and obtaining it in the least costly way. Government education spending invariably means putting resources into the formal, state-supported system of schooling. The people in that system have their own incentives, as public choice theory explains, and don’t necessarily want to make education efficient. Systemically, inefficiency is good because it will indicate a “need” for more people and more money.
